Opinion: Cancelling Russia may weaken European chemical producers

American chemical producers such as Olin Corp. could become stronger at the expense of their European rivals, according to a report on the investor portal Seeking Alpha. While both the United States and the European Union have imposed restrictions on Russia to help end the bloodshed in Ukraine, Europe has deeper ties with Russia and may suffer more from severing them.

For European chemical companies, Russia has been both a reliable supplier of commodities and a market for their products. In response to Russia’s aggression against Ukraine, Germany’s BASF and Switzerland’s Clariant have suspended their operations in Russia, while Austria’s Borealis dropped a potential deal with a Russia-linked producer. Buying production commodities and feedstocks, including natural gas, polymers and rubbers, from Russia has provided a cost advantage for European companies.

Read more: Ukraine war has "turbocharged" green hydrogen sector

The EU has so far failed to reach a consensus on halting Russian oil and gas purchases because doing so would hurt the European economy, disrupt industrial production and inflate prices. Vagit Alekperov, a former CEO of the Russian non-state oil producer Lukoil, told the Financial Times earlier this month that any EU move to cut off Russian oil imports would be “a shock for everyone”. 

EU–Russia cooperation has been mutually beneficial. European companies supplied Russia with modern equipment to upgrade production facilities and export better products to Europe. Sibur, Russia’s largest petrochemical producer, is an example. Under the leadership of former CEO Dmitry Konov, it spent billions of euros on European equipment to modernise production facilities. As a result, Sibur has been supplying high-quality products to Europe, including the most advanced types of plastic, synthetic rubbers for tire manufacturing and liquefied petroleum gas (LPG), which is a cheaper and cleaner alternative to diesel and gasoline.

Still, pressure on Russian business is intensifying. Even private Russian entrepreneurs with zero connections to the Kremlin have been put on sanctions lists. A deal on a stalled proposal to introduce an EU-wide ban on Russian oil imports could be reached “in a matter of weeks”, according to European Commission President Ursula von der Leyen.

Read more: “Europe has not been smart”: IE meets Prof. Marco Taisch

By cutting ties with Russia, and potentially with Russian supplies, “Europe is condemning its companies to lower profit margins and lower efficiency”, says Seeking Alpha. “This is the reason why BASF, for example, lags far behind its American peers in terms of value creation for its shareholders.”

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